As the M&A market gains momentum, the complexity and value of legal disputes are reaching new heights. In this episode of the ABF Journal Podcast, Rita Garwood, Editor-in-Chief of ABF Journal, sits down with Frank Dery, a Managing Director in BRG’s Chicago office, and Kevin Hagon, a Director in BRG’s London office. Together, they explore the technical and psychological drivers behind the current wave of M&A litigation, from the pitfalls of earnout definitions to the impact of global volatility on closing conditions.
Rita Garwood: Why is a resurgent deal market actually creating more conflict rather than smoother exits?
Frank Dery: It’s really a numbers game. The more deals you have, the more likely there is to be a dispute at some point. Years ago, it might have been only the best-of-the-best companies being sold. Now, sellers see an opportunity to sell companies they couldn’t a couple of years ago, and buyers are eager to jump in. As deal volume drives higher, you end up with less desirable companies being bought and sold, which naturally leads to more disputes.
Kevin Hagon: There was definitely a period where private equity was struggling to exit positions and was holding them for a long time. As those opportunities to exit increase, there might be a bit of a rush to get those deals done . When things get rushed, they get done the wrong way, and that leads to disputes.
Garwood: While 65% of surveyed experts expect dispute volumes to rise, 72% predict that average dispute values will grow. What’s driving these bigger claims and why is North America expected to see the most significant increase?
Dery: The North American market is unique because we’re accustomed to working capital and earnout disputes. The introduction of representation and warranty (R&W) insurance has created a boon; it’s a lot easier for a buyer to file an R&W claim than to sue a seller in court . The dollar value is getting bigger because R&W claims tend to implicate financial statements and historical practices, which are larger disputes .
Hagon: Another aspect is the volatility of valuations. If you have a warranty dispute and the resolution involves comparing what the business is worth to what was paid, high volatility can lead to a much bigger drop in value and, consequently, a larger claim.
Garwood: Why is the middle market currently the “eye of the storm” for M&A conflict?
Dery: There is simply a larger number of deals under a billion dollars getting done. Beyond the numbers game, middle-market players tend to take these issues personally and want to ride them through to the end . I’ve had clients tell me that if they are carving out non-core businesses, they will take a claim “all the way to the mat” to send a message to the market that they won’t negotiate away value on the next ten deals.
Hagon: When a founder is involved, you often get an emotional reaction to a dispute. They are less likely to settle and more likely to take it to a later stage because it means a lot more to them.
Garwood: 41% of PE respondents agree that private equity involvement increases dispute risk, yet they’re also more likely to settle. How do PE firms balance being contentious with being commercially pragmatic?
Dery: Private equity firms are often more willing to enforce the terms of a contract in the first instance. However, they don’t want to spend millions disputing something if they don’t have to. Their real return comes from integrating and maximizing the value of the business. They look for a reasonable commercial off-ramp at the back end.
Hagon: There is a tension there because you don’t want to be the dog that only barks but doesn’t bite. If a firm gets a reputation for always litigating but never going all the way through with the process, they will eventually be seen through.
Garwood: Geopolitical turmoil has jumped as a leading dispute driver for 2026. How are events like tensions in the Middle East or Latin America manifesting as legal disputes?
Dery: You see it in operational aspects. For example, if a country invokes force majeure on contracts, the business you are buying is now much different than it was during diligence . We also saw this with the Ukraine-Russia conflict; receivables that were good one day had to be written off the next. There is a lag, but these issues eventually hit the accounting and valuation side.
Hagon: This triggers “MAC clauses” (Material Adverse Change). Someone might get cold feet because of current events and try to find a way for the conditions precedent not to be met or for a MAC clause to be invoked to get out of the deal .
Dery: We saw a similar thing during COVID with changing tax rules regarding NOLs (Net Operating Losses). Laws that weren’t even in place when a deal was signed caused disputes that nobody could have foreseen. I think new tariffs might follow a very similar construct.
Garwood: How are shifting interest rates and macroeconomic pressures turning valuation uncertainty into formal legal battles?
Hagon: Valuation volatility makes it more likely that one side will regret the value they previously agreed to . If the dynamic of the deal has changed, buyer or seller remorse can lead them to invoke whatever mechanism they can to either get out of the deal or recover value.
Garwood: Earnouts are being tested now as a lagging effect of post-COVID deal structures. What are the most common drafting mistakes you see?
Hagon: Earnouts are a compromise for when parties don’t agree on valuation, but they are often two to five years out. A major issue is that once a business is integrated, it’s hard to measure its standalone EBITDA . Buyers may award more costs to the purchased business than intended to squeeze the earnout payment. Sellers need to nail down how the business and key numbers like EBITDA are defined to protect against self-serving manipulation.
Dery: From a US GAAP perspective, a common mistake is using the term “extraordinary” to exclude certain gains or expenses. GAAP actually got rid of the concept of “extraordinary” around 2014. If the parties don’t define what that means, it becomes very ambiguous when millions of dollars are riding on it.
Hagon: Any disputed item is also inflated by the deal multiple. Something that seems small in the EBITDA calculation is magnified nine or ten times in the final consideration payment.
Garwood: 46% of respondents cited due diligence issues as a primary dispute factor. What critical steps are being skipped?
Dery: It’s often not about steps being skipped, but steps being moved through too quickly. Under pressure to close, diligence might identify an issue that doesn’t get captured in the final purchase agreement. Post-close, the seller says the information was in the data room, and the buyer says the agreement should have protected them.
Hagon: There’s no single homogeneous due diligence issue; by definition, it’s usually something serious people didn’t think of . It’s about being thorough and not being blind to potential issues just to get the deal done.
Garwood: If you were advising a CEO closing a deal tomorrow, what is the single most important contingency they should nail down to stay out of a dispute?
Dery: You can’t necessarily avoid a dispute, but you want to protect yourself so you can fight back . Get dispute professionals involved as early as possible—even if just to read the purchase agreement for an hour or two. The diligence process is different than the dispute process; we see what goes wrong in that 10% of deals that fail and can help you structure language to prevent those same issues .
Hagon: Sellers should be very careful about accepting an earnout that is years away without a clear understanding of how the business will be structured or how the terms are protected from manipulation. Also, avoid situations where the buyer has total control over whether conditions precedent for closing are met.